Mike Walker lays out a disturbing scenario supported by historical references and raw economic data… I hope I have some change left...
When the Next Bubble Bursts
All,
Life with our Federal Government is like a marriage, so here are my taxpayer wedding thoughts:
Something Old – From over a year ago
Something New – Bipartisanship
Something Borrowed – TARP Payback
Something Blue –The Next Bubble: Our Federal Deficit
So here we go!
A. Something Old – From over a year ago
It Is The Economy Stupid!
All,
My very brief musings on the current troubles in our economy. Here are hard questions that need to be asked in Washington:
A. Increase the velocity of the dollar in the economy. This means getting the cash flowing again in our financial markets. When the "quiz kids" and hat-in-hand bankers show up ask them how they are going to achieve this paramount goal. If they waffle, dissemble, etc send them packing without a dime.
As an aside, it is a national loss that many investment banks have gone away. Investment banks are a great engine for economic growth. Their "velocity" in priming the economy is double that of commercial banks. They are the best.
B. Good Stable Jobs = Support for Private Sector Businesses.
Job #1 is support for Small Business. That is the road to turning the economy around. Every other stimulus goal must be secondary.
When someone opines in Washington that they have the "magic bullet" to cure our ills ask them about small businesses. If it ain't first and foremost then send them packing without a dime.
Job #2 is support for the rest of the private sector. If we want to keep jobs in America we need to make American industry competitive. We have the second highest corporate tax rate in the developed world. Shame on us! We need to be globally competitive and that means keeping big government out of the pockets of the private sector.
Job #3 is infrastructure development. This is an essential but tricky issue. Infrastructure can enhance economic growth but alone it cannot turn an economy around.
When the gurus propose their infrastructure plans, ask how does this help our Country achieve Job #1 and Job #2?
If it looks like they are giving you the "smoke screen" and really arguing infrastructure is Job # 1 then send them packing without a dime.
The purpose of infrastructure development is to create an environment that allows the private sector to thrive. Building a bridge to make it economically efficient for local business to operate is super. Building roads to provide access for new businesses is the ticket.
But these projects are never ends in themselves. They take years to get off the ground and it is short-term work. Once the bridge is built the jobs go away for many decades.
Ask how the project stimulates the private sector and how that will create long-term job growth. If the nabobs can't clearly answer that question then send them packing without a dime.
The last Job. Assisting failed/failing industries and State/big city bureaucracies. When these guys come begging ask them to specifically explain how they are going to change.
Ask them to present a fiscally responsible plan for the future. Ask them to explain in detail how the money they want from Washington is a one-time bridge to a responsible future. If they can't provide the answers then send them packing without a dime.
C. Change the business model in Congress. Kill the pork added to the economic actions. Enough is enough. This national economic downturn is a real problem. It is a serious problem. It is time for adult leadership in congress.
Congress needs to put our county first and their pork project/special interest pandering dead last.
Ask your elected representatives if they are going to deal with the task at hand before they go back to politics as usual. If they start to pontificate and ramble, vote them out the first chance you get.
Semper Fi,
Mike
New 2010 Addendum: There are two points I would like to add to this “something old” section. First, I failed to note that during the last recession in California small businesses alone led the way in job creation. That is why support to small businesses is so crucial. Second, when the states, like my California, come knocking for more bail out money then simply tell them “No.” But also tell them the federal government is ready to give them a LOAN, and one with a sweetheart deal on the interest rate. But firmly say “No” to any further federal gift of funds.
B. Something New - Bipartisanship
Remember what the late Tip O’Neill used to say about differing political opinions: Hate the sin but love the sinner. It is OK to disagree. It is NOT OK to hate the other guy or consider them a criminal because you disagree.
In 2008 the wind was to the back of the Democrats.
In 2010 the wind is to the back of the Republicans.
The overwhelming majority of us were more than willing to support a centrist President Obama.
Very few of us thought we were going to have the country run by the far-left folks under Nancy Pelosi.
We have had it with them and are fed up.
But very few of us want to be led by a bunch of far-right folks from the Republican Party.
So here is what needs to happen. After the 2010 elections in November, the Republicans and the Democrats need to identify five to ten tasks of great need that are shared in common, if not identical, aim. They then need to sit down with the President and under his leadership seek to find the middle ground with all their might to get the job done for the benefit of all Americans.
If that cannot happen then a pox on all their houses.
C. Something Borrowed – TARP Payback
“We want our money back!” President Obama declared during a 15 January 2010 speech where he announced a proposal for a new 15% tax on banks that took TARP monies. Here are the facts from the “top ten” list on where our tax dollars went:
AIG $69.8 Billion $0 $0 Exempt
Fannie Mae $59.9 Billion $0 $1.3 Billion Exempt
Freddie Mac $50.7 Billion $0 $3 Billion Exempt
GM $50.7 Billion $0 $0.3 Billion Exempt
Ctitgroup $45 Billion $20 Billion $2.5 Billion 15% Rate
B of A $45 Billion $45 Billion $2.8 Billion 15% Rate
Wells Fargo $25 Billion $25 Billion $1.3 Billion 15% Rate
JPMorganC $25 Billion $25 Billion $0.8 Billion 15% Rate
GMAC $16.3 Billion $0 $0.7 Billion 15% Rate
Goldman-S $10 Billion $10 Billion $0.3 Billion 15% Rate
Morgan-S $10 Billion $10 Billion $0.3 Billion 15% Rate
$135 Billion paid back with interest is a good start. But we taxpayers are still owed $272.4 Billion by the big borrows alone.
How about collecting from these deadbeats?
How about taxing every pig at the federal money trough the same? While you’re at it, how about capping the million dollar salaries for the two super pigs, Fannie Mae and Freddie Mac? And also promise no more “closed door” payout deals for the AIG fat cats as well.
D. Something Blue – The Next Bubble: Our Federal Deficit
Top 6 World Economies and Stimulus Spending
United States $887 Billion February 2009 ARRA
Japan $100 Billion April 2009
China* $590 Billion November 2008
Germany $67 Billion February 2009
France $31 Billion February 2009
United Kingdom $250 Billion October 2009
* As reported in late January 2010 in the Wall Street Journal, China is desperately trying to roll back its stimulus due to the damage done to the economy.
Lest you need another perspective:
Period US Deficit Spending – What we will owe to others
2001-2004 $766 Billion
2005-2008 $1,200 Billion
2009-2012 $4,970 Billion (Actual and projected0
2013-2016 $3,440 Billion (Projected)
2017 alone! $1,080 Billion (Projected)
Good grief!
This is an unsustainable expenditure model. Why? Because we have to PAY BACK THE MONEY! It is nothing short of economic suicide to keep spending money we do not have at the rate of the US Government. If we keep going deeper and deeper into debt at this insane pace then that is the next bubble waiting to burst open in a flood of ruin over the world’s economy. At some unknown point in the future, the US will no longer be able to either borrow money or pay it back or both. Then all hell will break loose.
Are you prepared?
And for your own information, it ain’t the war considering US defense spending:
Year Percent of Federal Expenditures Note
1944 90% Peak of WWII
1952 70% Peak of Korean War
1968 46% Peak of Vietnam War
1987 28% Peak of Reagan defense build-up
2009 18% Iraq & Afghanistan Wars
Is there really a war on? You can’t tell by where we are putting our money.
Semper Fi,
Mike
Thoughts on bubbles for those who are not yet bored to tears:
Bubbles, at a basic level, have a few common characteristics.
First, the supposed “good” that is happening is at an unprecedented rate. In other words, the “good” thing grows so big that it becomes a “bad” thing. Second, we do not really understand what is going on but we think we do. I am particularly good at that. Third, the grey beards we seek out for knowledge say the unprecedented “good” is really a good thing when it is really a bad thing but we believe them anyway. Fourth, everyone thinks the good times will roll on forever. We convince ourselves that we are on the up escalator for life.
Then we get hit in the face with an ice-cold bucket of reality.
The 1930’s
We first saw this before the Great Depression with the stock market. First, the stock market grew to unprecedented heights. Second, everyone though they understood options, margins, splits, and the like. Third, all the young and bright economists praised the market conditions. Fourth, if you plunge into the marker you will only make money, forever. Then came the Stock Market Crash in October 1929.
The result was the Great Depression. This trip was so bad and so long that we learned not to repeat it for forty years.
The 1970’s
It began with the United States in a hopeless position where its dated manufacturing base, built on 1920’s technology left intact during the WWII, hit head on with the modern 1950’s and 1960’s technology utilized by the major world economies who had been forced to rebuild following the destruction of their industrial sector in WWII. By 1970 we simply could no longer compete in either the global or domestic marketplace.
We had wasted our enormous 1945 advantage by systemically declining to invest in new technologies because of what turned out to be a badly placed fear of losing any jobs that would be eliminated/displaced by modernization. We put almost everything into trying to hold back the tide of progress and inevitably almost lost everything when the tipping point was reached in 1970.
Our fall was further assisted by the Arab oil embargo of 1973. What followed was a national calamity. Year after year of double-digit inflation made paupers of retirees who saw their life saving turned into pennies by inflation. The story of old couples trapped by a fixed income eating dog food for meat protein was both sadly true and all too commonplace.
What is next?
We will be faced with two painful decisions. The first it to have great but limited pain by drastically reigning in government programs. The second is to have universally cataclysmic pain by letting the government programs run unabated until they crash the entire national economy ala the 2007 Fannie Mae/Freddie Mac/AIG/Investment Bank meltdown. Only this time it will be on a far larger scale.
The 2007 financial/mortgage meltdown was defined by the suffering of millions. The next one will be defined by the suffering of hundreds of million. This is our future if we do not act and act now to prevent it.
